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The Cato Institute has released its 2014 Annual Report, which documents a dynamic year of growth and productivity. “Libertarianism is not just a framework for utopia,” Cato’s David Boaz writes in his book, The Libertarian Mind. “It is the indispensable framework for the future.” And as the new report demonstrates, the Cato Institute, thanks largely to the generosity of our Sponsors, is leading the charge to apply this framework across the policy spectrum.

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Federal Pay: Myth and Realities

We’ve often heard that civil servants forgo higher private-sector salaries in order to serve the nation selflessly. Many federal bureaucrats are indeed hardworking, but new statistics show that they are anything but underpaid.

The Bureau of Economic Analysis released data this month showing that the average compensation for the 1.8 million federal civilian workers in 2005 was $106,579 — exactly twice the average compensation paid in the U.S. private sector: $53,289. If you consider wages without benefits, the average federal civilian worker earned $71,114, 62 percent more than the average private-sector worker, who made $43,917. [ Update (11/10):2009 Date Available Here]

The high level of federal pay is problematic in and of itself, but so is its rapid growth. Since 1990 average compensation for federal workers has increased by 129 percent, the BEA data show, compared with 74 percent for private-sector workers.

Why is federal compensation growing so quickly? For one thing, federal pay schedules increase every year regardless of how well the economy is doing. Thus in recession years, private pay stagnates while government pay continues to rise. Another factor is the steadily increasing “locality” payments given to federal workers in higher-cost cities.

Rapid growth in federal pay also results from regular promotions that move workers into higher salary brackets regardless of performance and from redefining jobs upward into higher pay ranges. The federal workforce has become increasingly top-heavy.

The structure of that workforce has also changed over time. There are fewer low-pay typists and more high-pay computer experts in the government today than there were a generation ago. But that doesn’t explain why, as the BEA data show, federal wages have risen 38 percent in just the past five years, compared with 14 percent in the private sector.

Whatever the reasons, the federal civilian workforce has become an elite island of secure and highly paid workers, separated from the ocean of private-sector American workers who must compete in today’s dynamic economy.

Federal workers’ unions try to convince Congress that their members suffer from a “pay gap” with the private sector. They point to studies showing that in similar jobs, federal workers are paid less than they would be in large private companies. But such studies typically look only at wages and don’t consider the superior benefits enjoyed by federal workers.

Federal workers receive generous health benefits during work and retirement, a pension plan with inflation protection, a retirement savings plan with generous matching contributions, large disability benefits, and union protections. They often have generous holiday and vacation schedules, flexible hours, training options, incentive awards, flexible spending accounts, and a more relaxed pace of work than private-sector workers.

Perhaps the most important benefit of federal employment is extreme job security. According to Bureau of Labor Statistics data, the rate of layoffs and firings in the federal workforce is just one-quarter the rate in the private sector. All these advantages in worker benefits suggest that, in comparable jobs, federal wages ought to be lower than private-sector wages.

One sign that federal workers have a sweeter deal than they acknowledge is the rate of voluntary resignation from government positions: just one-quarter the rate in the private sector, the BLS data show. Long job tenure has its pros and cons, but the fact that many federal workers burrow in and never leave suggests that they are doing pretty well for themselves.

Of course, particular federal jobs may be underpaid and others overpaid. The average annual compensation of federal air traffic controllers is $170,000, which certainly seems excessive. One way to determine proper pay levels objectively would be to privatize services and let the market decide what they’re worth.

The Bush administration has tried to bring greater payroll flexibility to the federal government, but it has also presided over large pay increases. To get spending under control, Congress should consider trimming overly generous benefit packages and freezing federal wages for a few years. With federal civilian compensation costing about $200 billion a year, this area is ripe for reform.